Fundamentals: The Mobile Payment Frontier

Michael A. Davis03/01/12

The Mobile Payment Frontier

The mobile payment market is poised to transform the way customers purchase items in stores. A variety of technologies, services and apps that transform both smartphones and point-of-sale systems are emerging, offering ­retailers a new way to collect money from their customers.

Retailers have multiple options for supporting mobile payments. The first is via the use of near field communication technology, a radio system that allows two or more devices to communicate from a distance of just centimeters. This system lets customers tap a smartphone against a special reader to pay for a purchase. Initiatives such as Google Wallet and Isis aim to drive NFC-based mobile payments into the retail landscape. However, doing so requires NFC-enabled phones and PoS readers, as well as apps written to take advantage of NFC systems. Retailers that follow this model will incur the cost of deploying and operating new PoS devices and must rely on customers to purchase NFC-equipped smartphones.

A second option is to build a custom mobile payment system. Starbucks has taken this route with its Starbucks Card Mobile App. The app is tied to the company’s Starbucks Card, a multibillion-dollar payment and rewards system created by the coffee vendor. The app links to a customer’s Starbucks Card account and creates a bar code on the customer’s smartphone that can be scanned at checkout. The cost of the purchase is then charged against the customer’s account.

Retailers also have other options. For instance, payment processor startup Square offers a mobile payment system that lets users load money from a credit or bank card into a smartphone app. Customers can then pay for goods via an app called Card Case at merchants that run Square software.

The question for retailers and merchants is which way to go, if any. This report examines the various options available and looks at current and potential growth of the mobile payment market. (S4260312)